Shareholders in Insurance Australia Group, Australia’s biggest general insurer will feel the pain of the weaker half-year result (courtesy of Sydney’s December hail storm) with a 2 cents a share cut to the interim dividend.
The company’s interim fully franked dividend is 12 cents a share, down from 14 cents a share in the first half of 2017-18.
In the first half, IAG also paid a special dividend of 5.5 cents a share and a capital return of 19.5 cents a share in a $592 million capital management initiative approved by shareholders at the 2018 annual general meeting.
IAG shares rose more than 9% in early trading and ended the day up 4.32% at $7.6, the highest price since the end of August 2018.
IAG said interim net profit fell 9.3% to $500 million from $5.51 million a year earlier.
The company blamed the hailstorm that whacked parts of Sydney in December, adverse credit spreads and higher costs.
The company said it expects “slightly more subdued growth” in the second half of the year to June – an admission that won a higher share price rather than the usual panicked sell-off by skittish investors.
Net profit fell to $500 million in the six months ended December 31, compared with $551 million in the same period a year earlier.
IAG’s insurance profit was down 33% to $496 million, while cash earnings fell 49% to $319 million.
Australia’s biggest general insurer had $5.88 billion of gross written premiums in the half while its underlying margin — the company’s preferred measure of performance — rose to 16.2%.
Chief executive Peter Harmer said the company’s reported margin of 13.7% was lower than in the first half of fiscal 2018 because of higher claim costs, coming in at $110 million above allowance following the December Sydney hailstorm.
“IAG’s underlying performance has continued to improve over the half and was broadly in line with expectations,” Mr. Harmer said.
“Our underlying margin increased 70 basis points to 16.2 percent, reflecting ongoing premium increases across the book that are at least matching inflation on claim costs,” he said.
The 20% quota share treaty with Warren Buffett’s reinsurance group helped soften the impact of the storm (and will continue to do so in the quarter). Berkshire Hathaway takes 20% of the premiums in change for taking 20% of the claims.
That allows IAG to keep less capital in the business and provides a very handy support line when big claims emerge such as the hailstorm whose cost looks like rising well above $1 billion.
